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Emerging and small open economies, unconventional monetary policy and exchange rates – a survey

Ansgar Belke () and Christian Fahrholz ()
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Christian Fahrholz: DIHK, Deutscher Industrie- und Handelskammertag e. V

International Economics and Economic Policy, 2018, vol. 15, issue 2, 331-352

Abstract: Abstract At the outset of the Great Recession emerging in 2007, central banks of major-currency economies have adopted non-standard monetary policies. We examine whether and to what extent these measures pose a challenge to central banking in emerging and small open economies. In particular we assess how global liquidity spillovers caused by major central banks affect the economic dynamics of emerging and small open economies. In this respect, economies which are close to or even at the periphery of major-currency economies are particularly prone to “unbalanced” real exchange rate dynamics. In the short run, corresponding level and volatility effects in key relative prices may endanger financial stability in the recipient country. The long-term effects include a metamorphosis of the anchoring of private-sector inflation expectations into a perilous tightrope act in central banking of these economies.

Keywords: Real exchange rates; Emerging and small open economies; Central banking; Great recession; Spillovers (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 E65 (search for similar items in EconPapers)
Date: 2018
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